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The great thing about the stocks I own in my TFSA and RRSP is that they pay dividends monthly or quarterly. That cash starts to pile up though after a few months, especially if I don’t see anything I want to invest in for the long term. If I put in a new contribution without having a plan for it, my stack of cash can grow into the thousands. That’s what happened recently in both my TFSA and my RRSP brokerage accounts and I decided to park the cash temporarily until I decide how to use it.

What Cash Savings Options Does BMO InvestorLine Offer for TFSA and RRSP Accounts?

You can have a RRSP with investments in Canadian dollars or American (US) dollars at BMO InvestorLine. So they offer two ‘high interest’ savings account mutual funds, one in USD and one in CAD. They also offer a cashable GIC.

What Interest Rates Are AAT770 and AAT780 Paying on Cash Investments at BMO InvestorLine?

Today, on March 18, 2017, the rates are

AAT770 0.75% on Canadian dollar, CAD, investments

AAT780 0.50% on American dollar, USD, investments

The money is deposited as if you are buying a no-fee mutual fund. It takes the trading day plus one business day to settle.

What Interest Rates are Cashable GICs Paying at BMO InvestorLine?

Today, on March 18, 2017, they are offering

a one-year GIC, cashable after 30 days, which pays an annual interest rate if held to maturity of 0.85%.

For reference, a one-year-fixed-term GIC (which cannot be cashed before the year is up) is paying an annual interest rate of 1.25%.

You can have a RRSP with investments in Canadian dollars or American (US) dollars at CIBC Investor’s Edge. So they offer two ‘high interest’ savings account mutual funds, one in USD and one in CAD. They also offer a cashable GIC.

What Interest Rates Are ATL5000 and ATL5500 Paying on Cash Investments at CIBC Investor’s Edge?

Today, on March 18, 2017, the rates are

0.75% on Canadian dollar, CAD, investments

0.55% on American dollar, USD, investments

What Interest Rates are Cashable GICs Paying at CIBC Investor’s Edge?

Today, on March 18, 2017, they are offering

a one-year GIC, cashable after 30 days, which pays an annual interest rate if held to maturity of 0.5%.

For reference, a one-year-fixed-term GIC (which cannot be cashed before the year is up) is paying an annual interest rate of 1.26%.

So now I know my options, I can park my cash. It doesn’t look like I should leave it sitting idly by for too long at those rates though!

I mentioned earlier that I’ll be suggesting my young teen relative open a TFSA as soon as he is 18. I’d suggest he save his first $5500 in cash in a cashable GIC or a high interest savings account as an emergency fund. Once he has more than $5500 in savings, though, I’d suggest he keep his cash outside his TFSA and use the room to shelter income earned from higher yielding investments. He would likely do best if he invested his “equity” high-risk long-term savings in mutual funds or ETFs that mirror the major stock indices (the TSX for Canada; the NYSE for the US; various others for the world). That’s why I suggested he consider investing in Tangerine Balanced funds. Some people, however, don’t like buying index funds. They may prefer another investing approach and buy individual stocks in their TFSA instead.

When Is It Worthwhile to Open a Self-Directed TFSA at a Brokerage?

You can’t buy stocks within a TFSA without having a brokerage account.

If you don’t want the shares in a “registered” account, you can just buy them without a brokerage. For example, you can buy shares in Suncor from someone who owns some and then buy more after registering those shares with the correct Transfer Agent, Computershare. You’ll get your dividends direct deposited into your bank account or by cheque. But Computershare does not manage “registered” accounts like TFSAs and RRSPs. So you can’t use this approach for a TFSA. Or at least I couldn’t find any way to do it.

All of the big Canadian banks offer a discount brokerage that will let you open a self-directed TFSA account. There are also several independent discount brokerages. Fees change all the time but many of these brokerages will charge a fee if you don’t have at least $10 000 in assets in your TFSA. So check the details carefully before opening a TFSA brokerage account. What minimum balance is required to avoid annual, quarterly, or inactivity fees? What will it cost to purchase (or sell) shares?

Are There Any Benefits for a Teen to Opening a TFSA at Their Parent’s Brokerage?

Some discount brokerages waive the minimum balance requirement for accounts held by family members living at the same address. Check the details of your own brokerage if your teen is ready to open a self-directed TFSA.

How Would I Suggest a Teen Use a Self-Directed Brokerage TFSA to Buy Shares of Stocks?

As I said earlier, I would recommend a teen get a stock-market-mirroring ETF or mutual fund before recommending individual stocks.

If individual stocks are what they want, however, that’s their choice.

I think they should only be investing their long-term savings in equities of any kind. I also believe that those savings should be only 10-25% of their total savings until they have about $50 000 in cash and fixed income.

Those things said, they may only have $5000 to invest in stocks in their TFSA.

Should they use all $5 000 to buy shares in one company, or buy $1 000 of each of 5 companies?

I’d say that if you have invested in only 1 or 5 companies you are not diversified. You might as well take all of the risk and bet all of your money on one horse. So I’d invest the $5 000 in one company. Then, when I have saved up another $5 000, I’d buy shares in my next choice.

What Stocks Would be Good for a Beginning Investor?

Any stock can down now. Most stocks will go way down just when you least expect it. There is no stock that is best for a beginning or experienced investor.

Generally, though, if you are going to pick individual stocks, which is very risky and has been more or less proven to earn you a lower return over the long run, you probably should start with the kind that pays a reasonable dividend so that you have some income during the years when the stock is down in value and you don’t want to sell it because you would guarantee you lose money by doing that.

So look at the current situation of some of the big names and talk to financial experts to understand how to evaluate the performance and expected performance of those stocks.

Common choices include

BCE

Any of the big 5 Canadian banks, such as BMO, BNS, CM, RY, TD

FTS, ENB, TRP

CNR

Any of these stocks could crash at any time. There are times when it is better to buy each of these types of stocks depending on their current price and their expected performance.

Should I Pick Exciting Growth Stocks for My TFSA?

You can pick anything you want. If you see an electric car startup that you’re sure will triple in value in a year, yes, you can buy its stock if it’s listed on the TSX.

But ask yourself why you are willing to take this risk. Would you pull out all of your savings and use them to gamble at a casino? If not, why would you gamble this way?

If your stock drops in value or the company goes bankrupt you can NOT claim a capital loss in your TFSA. Nor do you ever get back your contribution room. You’ve wasted your TFSA contribution space and you’ve lost money that cannot be used to offset gains from other more successful investments. A lose-lose scenario. Not what I’d choose.

Good Luck Picking Individual Stocks for Your TFSA

Overall, picking individual stocks for your TFSA is a tiring, somewhat worrying approach. If you don’t really like managing money or handling investments, why not just stick to the Canadian Couch Potato approach and buy ETFs or mutual funds? It will likely make you more money and take less thought and worry.

Either way, I’d encourage people saving for the long-term to use their TFSA to buy and hold equity investments.